Friday, October 4, 2013

Is France Turning the Corner?

For the first part of the this year I was bearish on France (see here). But over the last few months we've seen the economic numbers move from contraction to expansion (see here ). The recent GDP print is another reason for guarded optimism.

In Q2 2013, GDP in volume terms* rose by 0.5%, after a 0.1% step back in Q1.

Households’ consumption expenditure accelerated (+0.4% after -0.1%). Total gross fixed capital formation (GFCF) decreased again though less sharply than in
Q1 (-0.4% after -1.0%). All in all, final domestic demand (excluding changes in inventories) contributed mainly to GDP acceleration: +0.3 percentage points after -0.2 percentage points. In addition, exports strongly bounced (+2.0% after -0.5%). Due to the acceleration of the total demand, imports also accelerated (+1.7% after +0.1%), so that foreign trade balance had a neutral accounting contribution to GDP growth this quarte (after -0.2 percentage points). Finally, changes in inventories contributed positively to the activity: +0.2 percentage points in Q2, as much as in Q1.

Let's take a look inside the numbers:

This chart shows the percentage chance in GDP and the contributions from various GDP components. First note that overall top-line growth (the red line) has been printing around 0 since the 2H11; last quarters .5% print was the best reading we've seen in over a year and a half.

The table above shows the percentage contributions from various GDP components; I've placed the positive contribution in green and the negative in red. Notice the decent bump in consumer increases (up .4%) and government purchases (up .7%). However, the biggest and most surprising figure is the exports number which increased 2%. This shows that other economies are also growing. In contrast, notice the household investment subtracted 1.7% from overall growth last quarter.

At this point, the standard economic caveat should be stated: this is one quarter of data, and France has had a very difficult road over the last few years, so we need to see several quarters of additional data before arriving at a firm conclusion. However, this month's data is encouraging.